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Covid-19 impact: FM Nirmala Sitharaman raises insolvency threshold of default to Rs 1 crore for MSMEs

In order to deliver some reduction to the money strapped MSME sector amid the Coronavirus pandemic, Finance Minister Nirmala Sitharaman on Tuesday raised the threshold of default to Rs 1 crore from the present Rs 1 lakh to stop triggering of insolvency proceedings towards MSMEs. “This gets implemented straightaway,” the FM mentioned.
The Minister additionally mentioned that they are going to be watchful of the current state of affairs and can contemplate suspending Section 7, 9 and 10 of the Insolvency and Bankruptcy Code (IBC) if the state of affairs persists. “This can stop companies from being forced into insolvency proceedings in such force majeure causes of default,” she categorically said.

Previously, a default of Rs 1 lakh alone was sufficient to provoke Corporate Insolvency Resolution Process (CIRP) towards the mentioned defaulters.

Hailing the transfer, KR Sekar, Partner, Deloitte mentioned that at a time when Covid-19 has been choking companies, it’s a good transfer by the Finance Minister that the threshold of default has been prolonged. “The move preventing insolvency proceedings against MSMEs will help thousands of small firms that are spread across the length and breadth of the country,” he mentioned.

It has been a very exhausting pressed time for the numerous SMEs and small companies throughout the nation who’ve been reeling underneath the affect of the Covid-19, dealing with extreme losses and shutdowns in unsure occasions that loom massive for their ilk.

Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) mentioned that the impact of this transfer could be two pronged. “While on the one hand it would reduce the number of frivolous cases in IBC/NCLT, on the other hand it raises the bar to exclude the majority of MSMEs who could use IBC as a threat to seek payment of their dues.”

With this announcement, SMEs is not going to have to instantly stare at insolvency from actions taken by a financial institution or some other creditor.

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